Ashok Leyland could be worst affected as brokerages lower M&HCV estimates

Sales of medium and heavy commercial vehicles (M&HCVs) reduced over 15 per cent year-on-year in November, the first double-digit fall in 15 months. 

While Tata Motors’ M&HCV sales dipped 14 per cent, those of Ashok Leyland fell 18 per cent. The numbers were much below analysts’ estimates. 

While some fleet operators postponed purchases on account of low consumer sentiment, other reasons for the muted sales were higher interest rates, rising fuel costs, and most importantly the tightening of liquidity. Higher axle load norms also contributed to the fall in volumes. Analysts at Nomura expect the weak trends to continue. 

Volumes are expected to remain weak given a higher base, lack of broad-based growth with only the tipper segment performing well, and the fact that the cyclical uptrend is coming to an end. 

An analyst at a domestic brokerage said, “Typically, the M&HCV sales growth cycle lasts for 3-4 years, but the industry is now in its fifth year of uptrend, so the numbers could be a sign that it is coming off its peak.”

Ashok Leyland will be the worst affected among top M&HCV players, given its products are skewed towards M&HCVs. 

Of its total volumes, over two-thirds are M&HCVs. 

While year-to-date sales of the company in this category are 23 per cent higher, most analysts had estimated growth for FY19 to be in the 11-15 per cent range. 

Given that the company has so far achieved sales of 87,547 units (FY19 estimates of just under 150,000 units), it will have to hit average monthly sales of over 14,500 units for the remaining four months of this fiscal year to meet FY19 estimates. 

This will be difficult, given the 8,700 units it achieved in November. Even in light commercial vehicles, though volume growth over the year-ago period was higher by 15 per cent, the same was down 17 per cent on a sequential basis.  

If the pressure on M&HCV continues, analysts are expected to revise their volume and earnings estimates downwards for the current year.